Our Housing System Must Be Reformed

The way Governments provide social and affordable housing is in need of major reform or the system will eventually collapse.

- By Mark Arbib

In 1944, towards the end of the Second World War, Ben Chifley received a report from the Commonwealth Housing Commission which warned that there was an estimated shortage across Australia of 300,000 homes.

In response, his Government set up the first Commonwealth-State Housing Agreement delivering social housing across Australia. The simple goal was to provide affordable housing to war veterans and families in need. Social housing was viewed as a springboard, helping families save deposits so that they could buy and move into their own homes.

Today we have an affordable and social housing system that is heavily over-subscribed, resulting in lottery style access – only the lucky get in and the many outside it continue to suffer.

Based on the evidence, we know that the affordable housing problem is significant. There is a shortage of houses across Australia estimated at around 200,000 homes. Currently, 200,000 Australian households are on social housing waiting lists, with 60,000 of these considered ‘in greatest need’. The general shortage of affordable houses in the wider market also places increasing demand on social housing, leading to increasing levels of social exclusion.

Of great concern is that demand for affordable housing is rapidly growing just as existing social housing stock is declining. With the ageing of the population, demand for social housing for older Australians is projected to double over the next 15 years.

The forecast need to deal with these pressures is an additional 150,000 social housing dwellings by 2023.

I receive letters every day from Australians who are struggling to get access to basic, safe and affordable housing. People struck by mental illness, single mothers facing homelessness due to relationship breakdown, people who have lost their jobs after becoming incapacitated because of an accident, elderly people who cannot afford to buy food because of rising rents. More than 20 percent of lower income private renters are spending more than half of their income on housing, placing immense strain on their ability to cope.

Historically when there is a shortage of affordable housing supply, governments have tried to step in to correct market failure.

In 2008, when the Global Financial Crisis hit, the Federal Labor Government acted swiftly to protect jobs and cushion the economy. There was significant capital investment in social housing under the $5.6 billion Social Housing Initiative. This Initiative will deliver almost 20,000 new social housing homes for Australians in need. Almost 17,000 have already been completed and the remainder will be delivered by June 2012.

A further 80,000 largely dilapidated social housing stock have benefited from repairs and maintenance under the stimulus package, including 12,000 that would have become uninhabitable without this work.

This massive injection of funding in social housing came after 12 years of neglect by the Howard Government, which ripped $3.1 billion out of social housing leading to a loss of 33,000 public housing homes.

Together with the National Partnership Agreement on Social Housing, which will add around 1,900 additional homes to the system, some 34,000 Australian households will benefit from this new social housing funded by the Federal Labor Government. More than half of these homes will go to Australians that are homeless or at risk of homelessness.

Acknowledging the need for more affordable rental homes, the Labor Government has invested in the most significant housing program since WWII – the National Rental Affordability Scheme. This Scheme will deliver 50,000 additional affordable rental properties at which rent is charged at a rate of at least 20 percent below market rates. By 2014, we will have delivered 35,000 of these homes, helping so many Australians who cannot afford to pay market rates of rent.

There is no doubt that this much-needed funding has been the greatest boost to social housing and the Australians who rely on it since Chifley’s Government decided to act on social housing.

Yet despite this largest single investment in social housing in Australian history, the stock of social housing will start to decline again within two decades.

While State and Territory Governments manage social housing – and are assisted with funding of $6.2 billion over five years from the Federal Labor Government – there are systemic issues which need to be addressed.

First, their State housing departments are in structural deficit and despite holding about $80 billion worth of housing stock, very little of these assets are leveraged for growth.

Furthermore, during the negotiation of the last National Affordable Housing Agreement, some States resisted a move from a per capita basis to a per dwelling basis. Per capita funding is perverse as it encourages States to limit their housing stock to avoid having to spread funding across more houses. This arrangement cannot continue. I have strongly been encouraging States and Territories to work together and with the Federal Government to help develop a model of funding that does not carry these disincentives to growth.

Another issue is the cost of delivering the current system under this model. A great deal of funding is invested in maintaining a stock of housing that continues to contract in size. Under the previous Commonwealth-State Housing Agreement, $10 billion was provided over 10 years to fund social housing – and yet the number of social housing homes actually decreased over that time.

To meet the rising demand by 2023, an investment of around $30 billion in additional capital funding above the current operational funding would be required. That’s another six stimulus packages.

Governments cannot afford to do this on their own – that’s why policy innovation and incentives to attract more private funding is critical.

Compounding this supply problem is the very limited movement of people out of social housing – social housing is no longer a transitional pathway to independence but is increasingly becoming a destination point. Part of the reason lies with the disincentives in the system to become employed.

In part, the barriers to economic participation rest with the way rent is calculated. Any time a tenant earns an extra dollar, they automatically lose 25 cents to social housing rents – because rent is levied on an income-basis. There are an estimated 110,000 Australians in public housing who are in this predicament.

I often hear people say that once they have paid the extra rent, extra income tax, travel costs to get to work, and take into account any reduced Centrelink benefits, they are only a few dollars better off each week. I have also read letters from distressed people trying to get access to social housing who have said state housing authorities advised them confidentially to give up their part time work so they would be prioritised.

I do not believe it is good public policy for social housing tenants – some of the most vulnerable people in our community who need assistance to get back into work – to be placed in an effective poverty trap.

People naturally alter their behaviour according to incentives or disincentives around them and it is up to State and Territory governments to work through these barriers to ensure that social housing tenants are able to achieve social inclusion.

How we tackle these twin issues – addressing participation disincentives and tackling supply constraints – are key challenges that face modern governments, not just in Australia but throughout the developed world.

There is a lack of innovation and, by and large, the delivery of housing support has changed little in 50 years. If it does not change, vulnerable Australians and families in need will lose a crucial part of a safety net that we consider to be a necessary mark of our fair society.

There are moves underway to deliver much-needed reform in the social housing system. Next year, the Commonwealth, State and Territory Governments will begin rolling out a national regulatory system for housing providers. The purpose will be to attract private sector investment in community housing providers to assist them to deliver more housing. The UK has witnessed the emergence of a strong, vibrant community housing sector in the last two decades, largely as a result of an effective national regulatory system. Many Australian community housing providers have achieved great success in growing stock by leveraging their current assets and I see a strong future for community housing in Australia with a robust regulatory system behind it that reduces risks to lenders.

When the National Affordable Housing Agreement is renegotiated, States, Territories and the Commonwealth Government need to focus on designing a system that supports growth of social or affordable housing stock, that opens up access to more land for affordable housing development, and renewal of concentrated public housing where stock is ageing and social disadvantage is compounded.

To address some of these challenges, I have put together an independent expert panel to advise the Federal Government. It will make recommendations on ways to reform housing assistance, make the system more accessible and equitable, and ensure that social housing is not a poverty trap but a springboard. The panel will also consider how to use subsidies to attract private sector investment into affordable housing.

As a Federal Labor Government that believes in social inclusion, we consider access to affordable housing a basic need which all Australians have. While most of us take it for granted, your home is your foundation, providing a sense of stability and security and a platform to participate economically and socially.

It may just seem like bricks and mortar. But as Darryl Kerrigan, that great Australian philosopher from The Castle, wisely quipped “it’s not a house, it’s a home”. Without a place to call home, too many Australians are being left behind.

In a country with an economy as strong as ours, it is almost inconceivable that so many people are without a place to call home.